Capitalising On India’s Growth Potential : Medical Device Industry Will Not Be Left Behind

Key Takeaways

1. The Indian economy is growing strongly, and will continue to provide a conductive macro-environment for the industry to grow in.

2. The government is increasing spend on healthcare; and the Indian population is spending an increased amount of money on healthcare as a percentage of disposable income.

3. The disease profile is changing with an increase in acute diseases along side growth of chronics.

4. Health insurance is growing

While the Medical Technology Industry is different than “Pharma” in many ways , a look at the potential of India’s domestic Pharma market will certainly give insight into the future scenario for the potential for Medical Device Industry in India.

CII-PwC Report

The recent CII-PwC Report on “India Pharma Inc. – Capitalising on India’s Growth Potential” released at the “Pharma Summit 2010”, analyses the immense potential of India’s domestic Pharma market, which was valued at approximately US$12 billion in 2010, and showed a strong growth of 21.3% for the twelve months ending September 2010. PwC estimates that over the next 10 years, the domestic market will grow to US$49 billion – a compounded annual growth rate (CAGR) of 15%, with the potential to reach US$74 billion – a CAGR of 20%, if aggressive growth drivers kick in.

One of the reasons behind this expected growth rate is that India’s pharmaceutical industry has a favourable macro-environment to grow in. The Indian economy has rebounded from the global economic downturn, with real gross domestic product (GDP) growth reaching 9.66% in 2010.The Indian middle class is also expanding rapidly, with affordability of medicines increasing, and an increased percentage of disposable income being spent on healthcare. The government has made public healthcare one of its top priorities by launching policies and programs that are aimed at making healthcare more affordable and accessible, especially in rural markets.

The industry is witnessing trends such as acquisition activity, increasing investment, deeper penetration into the tier I to tier VI and rural markets, growth in insurance coverage and innovation in healthcare delivery. Taken together, these trends are leading to increased affordability of services to patients and access to quality medical care. We believe these trends, along with the favorable macro environment will propel the industry to the next level of growth.

Rural Markets – A Huge Opportunity

Currently, around 67% of India’s population, or 742 million people live in rural areas , but rural markets contribute to only 17% of the overall market’s sale. This represents a huge opportunity for pharmaceutical companies, as we expect these markets to be the future growth drivers for the industry.

Top Indian and foreign companies will look to increase their market share by entering into strategic alliances, strengthening their sales forces and increase penetration into newer markets.

Macro Factors Pushing The Industry

The Growing Indian Economy

The Indian economy is growing fast, and is valued at US$1.430 trillion in 2010. GDP growth, calculated on a Purchasing Power Parity basis reached 9.66% in the year 2010, and the International Monetary Fund (IMF) expects it to remain consistently above 8% till 2015. Furthermore, India’s share in the world GDP has been steadily increasing, and is expected to reach 6.28% in 2015, up from 4.17 in 2005.

Growing Middle Class With Higher Purchasing Power

India’s population is currently just over 1.1 billion and is projected to rise to 1.6 billion by 2050 – a 45.5% increase that will see it outstrip China as the world’s most populous state. Besides, India has a huge middle class population (households with annual incomes of US$4762 to US$ 23,810 at 2001-02 prices), which has grown rapidly, from 25 million people in 1996 to 153 million people in 2010. If the economy continues to grow fast and literacy rates keep rising, around a third of the population (34%) is expected to join the middle class in the near future. The middle class population is rapidly acquiring the purchasing power necessary to afford quality western medicine due to an increase in disposable income. The Indian population spent 7% of its disposable income on healthcare in 2005; this number is expected to nearly double, to 13%, by 2025.

Changing Disease Profile

The Indian population is experiencing a shift in disease profiles . Traditionally, the acute disease segment held a significant share of the Indian pharmaceutical market. This segment will continue to grow at a steady rate, due to issue relating to public hygiene and sanitation. But, with increase in affluence, rise in life expectancy and the onset of lifestyle related conditions, the disease profile is gradually shifting towards a growth in the chronic diseases segment. India has the largest pool of diabetic patients in the world, with more than 41 million people suffering from the disease; this is projected to reach 73.5 million in 2025.

IMS Health indicates that some of the fastest growing therapeutic segments in the Indian Pharma space today are chronic disease-related therapeutic segments. The anti-diabetic segment grew 29% in the 12 months ending July 2010. Cardio-vascular-medication and nervous system disorder medication grew at 22% for the same period of time, indicating rapid growth.(13)

The growing size of the Indian geriatric population will be a key factor in influencing the growth of the chronic segment. By 2028, an estimated 199 million Indians will be age 60 or older, up from about 91 million in 2008.(9)

Government Policies

The Indian government has been making efforts to improve nationwide provision of healthcare. It has launched policies that are aimed at:

• building more hospitals
• boosting local access to healthcare,
• improving the quality of medical training,
• increasing public expenditure on healthcare to 2-3% of
• GDP, up from a current low of 1%.(14)

Healthcare Insurance

India’s healthcare insurance industry is currently very small and limited, but is expected to grow at a CAGR of 15% till 2015. Around of 80% of India’s healthcare expenditure is financed out of pocket. This limits the propensity of Indians to spend on healthcare, particularly in lower and middle income groups which comprise around 95% of population.(8)

(Ref: CII – PwC Report on “ India Pharma Inc. : Capitalising on India’s Growth Potential” released at “Pharma Summit 2010” held on Nov. 27, 2010 at Ahmedabad )